Economic Problems

Yet despite high revenues from energy exports (or perhaps because of them), Iran is beset by a number of economic problems, many of them energy related. According to the EIA, Iran's oil production and exports are both declining, with some of the downturn attributed to guerrilla attacks on oil installations and some to a shortage of available gas to inject into existing oil wells to draw up more oil as depletion of the wells draws near. At the same time Iran's rate of domestic oil consumption is increasing rapidly, about 7 percent per year.23 A plunge in oil prices during 1998-99 was also devastating to Iran's economy, although the effects were not long lasting, as oil prices soon rebounded. However, Iran has a large budget deficit, mainly because of government subsidies of domestic gasoline, other fuels, and food products. Gasoline in Iran cost less than 40 cents per gallon before April 2003 (in the United States, the average price per gallon of gasoline was $1.56 in 2003). In 2003 Iran increased gasoline prices by 30 to 35 percent and announced that it might need to ration gasoline to control gasoline subsidy expenditures. Iran's government spent approximately $4.7 billion on domestic fuels in 2004, according to the EIA,24 and in January 2005 Iran's parliament refused to implement an additional increase of the price of domestic gasoline and other fuels, which might have helped Iran's economy. Because gasoline prices remain low, gasoline consumption in Iran keeps rising, driving subsidy expenditures up even further. To pay for the increase in subsidy expenditures, in November 2005 the parliament approved a measure to spend an additional $3 billion on subsidies during 2005-06, withdrawing $2.6 billion of this sum from a fund Iran had established in 2000 (primarily to protect its economy from an oil price collapse). Yet Iran imports about a third of its gasoline, meaning that such an increase in expenditures on gasoline subsidies will have an even greater economic impact. Legislators were opposed to spending any additional funds to pay for gasoline imports in 2007. Moreover, Zanganeh has reported that Iran's oil fields have a natural decline rate of 200,000 to 300,000 barrels per day and need to be upgraded and modernized.

Iran's other economic problems include a drain on its budget caused by a rapidly growing population (population has more than doubled in 20 years), a sizable rate of inflation (15 percent), a bleak unemployment rate, a high poverty level, inefficient and expensive governing bodies, and inefficient state monopolies for the key sectors of Iran's economy.

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